It doesn’t have to be taxing

20/08/2024 Ashleigh Sinclair Business, Features

Helen Thornley, a technical officer with the Association of Taxation Technicians, continues her look at tax benefits for employees

As the 2003 advert featuring Adam Hart-Davis, a scientist, author, photographer, historian and broadcaster, noted, ‘tax doesn’t have to be taxing’. Of course, HMRC needs to impose duties and obligations to ensure compliance. But that doesn’t mean that it is so mean as to not allow employers to give staff a little something without a tax bill.

In the first part of the story we saw how employers can give perks to staff in relation to their welfare – partly for practical reasons but also in pursuit of public policy such as helping them save for their retirement. Now it’s time to look at the ‘fun’ benefits that employers can give their employees without penalty.

Annual party: When inviting staff to any work event, attendees are unlikely to appreciate a tax bill at the end of the night. Fortunately, it is possible to treat staff to a party without a tax hangover, provided that a few conditions are met. These are:

The party must be an annual event – so a Christmas or Summer party, not a one-off celebration;
The event must be available to all employees either at a given site, or across the company; and
The cost per head, including VAT and any transport or accommodation must not exceed £150.

These rules are surprisingly flexible, and as long as the sum total cost per head over the events is under the £150 limit, it is possible to have more than one party. For example, a Christmas party costing £75 per head and a summer BBQ costing £50 a head would both fall within the cost limit as together they come to under the £150 limit.

Trivial benefits: Employers can make tax-free gifts to employees on occasions such as birthdays, weddings or Christmas by taking advantage of the trivial benefits rule. This provides a statutory exemption from income tax and national insurance for employees and employers provided that:

The cost of the gift, including VAT, does not exceed £50 per employee;
The gift is not cash, or a voucher which can be exchanged for cash;
The gift is not provided under a salary sacrifice or other contractual arrangement; and
The gift is not provided in recognition of particular past or future services performed by the employer.

While these conditions are usually straightforward, employers need to be aware this is an all or nothing exemption – if the cost of a gift exceeds £50 then the full value is taxable under the usual benefit in kind rules.
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